Wednesday, 30 November 2016

With
Temperatures Hitting 1.2 C Hotter than Pre-Industrial, Drought Now
Spans the Globe

Jeff
Goodell, an
American author and editor at Rolling Stone,
is noted for saying this: “once we deliberately start messing with
the climate, we could inadvertantly shift rainfall patterns (climate
models have shown that the Amazon is particularly vulnerable) causing
collapse of ecosystems, drought, famine and more.”

We
are in the process of testing that theory. In the case of drought,
which used to just be a regional affair but has now gone global,
Goodell appears to have been right on the money.

****

According
to a recent report by the World Meteorological Organization,
the Earth is on track to hit 1.2 degrees Celsius hotter than
pre-industrial temperatures during 2016. From sea-level rise, to
melting polar ice, to extreme weather, to increasing numbers of
displaced persons, this temperature jump is producing steadily
worsening impacts. Among the more vivid of these is the current
extent of global drought.

The
Four-Year Global Drought

During
El Nino years, drought conditions tend to expand through various
regions as ocean surfaces heat up. From 2015 to 2016, the world
experienced a powerful El Nino. However, despite the noted influence
of this warming of surface waters in the Equatorial Pacific, widely
expansive global drought extends back through 2013 and farther.

(The
Global Drought Monitor finds that dry conditions have been prevalent
over much of the globe throughout the past four years. For some
regions, like the Colorado River area, drought has already extended
for more than a decade. Image source: SPEI
Global Drought Monitor.)

In
the above image, we see soil moisture deficits over the past 48
months. What we find is that large sections of pretty much every
major continent are undergoing at least a four-year drought. Drought
conditions were predicted by climate models to intensify in the
middle latitudes as the world heated up. It appears that this is
already the case, but the Equatorial zone and the higher latitudes
are also experiencing widespread drought. If there is a detectable
pattern in present conditions, it is that few regions have avoided
drying. Drought is so wide-ranging as to be practically global in its
extent.

Widespread
Severe Impacts

These
drought conditions have noted impacts.

In
California alone, more
than 102 million trees have died due
to rising temperatures and a drought that has lasted since 2010. Of
those, 62 million have perished just this year. Drought’s
relationship to tree mortality is pretty simple — the longer
drought lasts, the more trees perish as water stores in roots are
used up. California has, so far, lost 2.5 percent of its live trees
due to what is now the
worst tree mortality event in the state’s history.

(It’s
not just California. Numerous regions around the world show plants
undergoing life-threatening levels of stress. In the above map,
vegetative health is shown to be moderately stressed [yellow] to
severely stressed [pink] over broad regions of the world. Image
source:Global
Drought Information System.)

In
the upper northern latitudes, the primary upshot of drought has also
been wildfires.
Wildfires are often fanned by heat and drought in heavily forested
regions that see reduced soil moisture levels. Thawing permafrost and
reduced snow cover levels exacerbate the situation by further
reducing moisture storage in dry regions and by adding peat-like
fuels for fires.

Drought
and wildfires in or near the Arctic justifiably seem odd, but when
one considers the fact that many climate models had predicted that
the higher northern latitudes would be one of the few major regions
to experience increases in precipitation, that oddity turns ominous.
If the present trend toward widespread Arctic drought is
representative, then warming presents a drought issue from Equator to
Pole.

(Lakes
and river beds dried up across India earlier this year as the monsoon
was delayed for the third year in a row. Image source: India
Water Portal.)

India
this year experienced similar, but far more widespread, water
shortages. In April, 330
million people within India experienced water stress.
Water resupply trains wound through the countryside, delivering
bottles of potable liquid to residents who’d lost access. A return
of India’s monsoon provided some relief, but drought in India and
Tibet’s highlands remains in place as glaciers shrink in the
warming air.

Shifting
north into Europe, we also find widespread and expanding drought
conditions. Thissituation
is not unexpected for Southern Europe, where global climate models
show incursions of desert climates from across the Mediterranean. But
as with northern Russia and North America, Northern Europe is also
experiencing drought. These droughts across Europe helped to
spark severe wildfires in Portugal and Spain in
the summer, as corn
yields for the region are predicted to fall.

Ongoing
drought and extreme weather have created local impacts to food
supplies in various regions. However, these impacts have not yet
seriously affected global food markets. Drought in Brazil and
India, for example, has significantly impacted sugar production,
which in turn is pushing global food prices higher. Cereal production
is a bit off which is also resulting in higher prices, though not the
big jumps we see in sugar. But a Food and Agricultural Organization
(FAO) Index for October of 2016 (173 approx) at 9 percent higher than
last year’s measure for this time of year is still quite a ways off
the 229 peak value during 2011 that helped to set off so much unrest
around the globe.

(Rising
food prices during 2016 in the face of relatively low energy prices
and significant climate-related challenges to farmers is some cause
for concern. Image source: FAO.)

That
said, with energy prices falling into comparatively low ranges,
relatively high (and rising) food prices are some cause for concern.
Traditionally, falling energy prices also push food prices lower as
production costs drop, but it appears that these gains by farmers are
being offset by various environmental and climate impacts.
Furthermore, though very widespread, drought appears to have thus far
avoided large grain-producing regions like the central U.S., and
central and east Asia. So the global food picture, if not entirely
rosy, isn’t as bad as it could be.

With
the world now likely to hit 1.5 C above pre-industrial temperatures
over the next 15 to 20 years, overall drought conditions will
likely worsen. Higher rates of evaporation are a primary
feature of warming, meaning more rain must fall just to keep pace. In
addition, loss of glacial ice in various mountain ranges and loss of
snow cover in drier Arctic and near-Arctic environments will further
reduce river levels and soil moisture. Increasing prevalence of
extreme rainfall events versus steady rainfall events will further
stress the vegetation that aids in soil moisture capture. Finally,
changes to atmospheric circulation due to polar amplification will
combine with a poleward movement of climate zones to generally
confuse traditional growing seasons. As a result, everything that
relies on steady water supplies and predictable weather patterns will
face challenges as the world shifts into a state of more obvious
climate change.

Aussie
Housing Market Collapses: Building Approvals Crash 25%

Following September's 9.3% MoM plunge in Aussie home approvals, hopes were high that October would see a bounce (expectations were for a 2% gain) as central bankers jawboned confidence higher. However, it didn't... Building approvals collapsed 12.6% MoM and a shocking 24.9% year-over-year decline is equal to the worst drop since Lehman. Ironically, just this month Aussie Treasurer eased restrictions on foreign buyers (otherwise known as bag holders it would seem).

It's been weak year anyway but this is an utter disaster as the Aussie housing bubble finally pops... (on a non-seasonally-adjusted basis the year-over-year drop is 28% - the biggest since Nov 2008)

This is the lowest level of building approvals per capita in 2 years as it seems China's credit impulse has faded entirely.

The cracks have been showing with default rates on the rise (as AFR reports)

Mirvac said it experienced a rise in the default rate for the settlement of off-the-plan residential sales, above its historic average of 1 per cent.

On top of defaults, the Australian apartment markets – which boomed in the last four years – are facing other fresh risks...

On Friday, HSBC said an oversupply of apartments in Melbourne and Brisbane could send unit prices down by as much as 6 per cent in 2017.

The apartment building boom, an ongoing concern for the Reserve Bank of Australia, especially in inner city Melbourne is likely to "start showing through" in price drops of between 2 per cent and 6 per cent in that city next year, HSBC chief economist Paul Bloxham said in a note.

It's a similar story in Brisbane where apartment prices are forecast to fall by as much as 4 per cent.

"A national apartment building boom, which has been part of the rebalancing act, is likely to deliver some oversupply in the Melbourne and Brisbane apartment markets, which is expected to see apartment price falls in these markets," Mr Bloxham said.

"A modest shakeout in the inner-city apartment markets in Brisbane and Melbourne, as we are forecasting, is not expected to have a broad-based impact on the overall housing market or economy."

Which perhaps explains why Aussie Treasurer Scott Morrison said the government will make changes to the foreign investment framework to allow foreign buyers to buy an off-the-plan dwelling that another foreign buyer has failed to settle as a new dwelling.

The federal government has announced it will make it easier for foreigners to buy new apartments amid concerns of a looming glut that will drive down prices.

Previously, on-sale of a purchased off the plan apartment was regarded as a second hand sale, which is not open to foreign buyers. Foreign buyers can only buy new dwellings.

The move effectively opens up the pool of buyers who can soak a potential flood of apartments hitting the residential markets due to failed settlements.

Hoping for some of the capital taking flight from China to rush down, we are sure.

Yesterday Citi produced a new index which pinned the Australian property bubble at 16 year highs:

Bubble trouble. Whether we label them bubbles, the Australian economy has experienced a series of developments that potentially could have the economy lurching from boom to bust and back. In recent years these have included:

the record run up in commodity prices and subsequent correction;

the associated boom in mining investment and current reversal;

record low bond yields;

the boom in housing construction, specifically apartments, that was spurred by the low interest rates.

Housing indicators in the bubble meter are at record highs but interest rates remain at record lows. Typically monetary policy is well into tightening mode at this stage in the housing cycle. A destabilizing housing burst (both in activity and prices) is a clear risk, particularly the longer the upswing runs.